The Three Pillars of Sustainability

Interview with John Karakatsianis, who, from the outset of the Corporate Social Responsibility management in the National Business Association of Colombia -ANDI- was the driving force behind the creation of the regional headquarters for Latin America and the Caribbean with the Global Compact Network of Colombia.

The Triple Bottom Line

In John Karakatsianis’ opinion, CSR is a concept that is used less and less in the world, currently replaced by the idea of Sustainability which includes not only social aspects but also economic, financial, and environmental factors. This is commonly known as The Triple Bottom Line.

This idea is not new. More than three decades ago – he recalls – The International Labor Organization (ILO) defined CSR as “initiatives by Companies voluntarily integrating social and environmental concerns in their business operations and in their interaction with their stakeholders,” a definition adopted by the European Union in their celebrated Green Paper consultation document.

For its part, the IE Business School in Spain concurs that a sustainable business generates economic, social, and environmental value. The Triple Bottom Line, therefore, appears in both definitions, both as CSR and as Sustainability, the two becoming synonymous terms with the same meaning.

Even more so, the Institute, from this point forward – he adds – develops the management tools for strategic planning by turning the Balance Scorecard of Kaplan and Norton into a Sustainability Scorecard, a modern navigational chart in Sustainability.

Based on the above, a sustainable Company should achieve its financial, environmental, and social strategies. This is where Sustainability and CSR are achieved in the strictest sense of the word.

It should be noted that CSR does not only relate to social matters leaving the other aspects (economic and environmental) behind. No. CSR also increasingly extends beyond The Triple Bottom Line, in which the term Sustainability – he insists – is preferred.

Good business practices

But, what is CSR or Sustainability? Simply this: The Triple Bottom Line. However, there is one more notion related to the previous idea that should be discussed: A system – Karakatsianis reports as a second definition – of good practices that Companies develop to positively impact Environmentally Responsible groups.

It should be noted that these are good business practices. And these steps should also be voluntary, and not of a mandatory or legal nature. These actions will therefore not only comply with established laws but also go beyond it, which are basic conditions for Companies to be socially or sustainably responsible.

Now, what do Environmentally Responsible groups called –stakeholders– that Companies impact by their actions refer to? This ranges from the community to the State and Government, to shareholders, clients-consumers, and providers. In other words, all people and social organizations that through various means enter a relationship with Productivity Units, whatever these may be.

“This is where the The Triple Bottom Line results in Sustainability”, says Karakatsianis, who reiterates that the impact to the stakeholders, which is what matters the most in CSR due to the financial and environmental aspects, are relative to such groups.

For example, the environmental authority, from its respective ministry, represents the Community and in its defense, dictates the corresponding standards related to the social impact of a Company’s operations.

Here is where the need arises – he adds – for the Company to stay in permanent contact with their Environmentally Responsible groups instead of remaining apart. And hence, the search for a solution to various social problems such as living on the backs of the Community, which unfortunately is a very common practice in many countries, thereby continues.

In summary, the concept of Sustainability, is reduced to maintaining good relationships with Environmentally Responsible groups, which must be respectful and take others into account, including governance – he notes – with healthy business practices.

These practices are regulated – he points out – by the CSR management systems through the standards reported in the Global Reporting Initiative (GRI) or the UN Global Compact’s Ten Principles.

Generating profits

This is much easier said than done. So, what should Companies do, specifically, to be socially responsible or Sustainable?

To begin with, Karakatsianis notes that the CSR method is the same for all Companies. It does not apply only to large, medium, and small size Companies. No Company, therefore, can refrain from adopting the good practices mentioned above.

If anything –he remarks- there are differences between the implemented resources and the coverage of social programs and projects. After all, the results are not the same, as clearly evidenced by the outcome of operations in forty countries as opposed to a smaller region. In both cases, business administrators should consider the necessary culture and, in this sense, develop a productive activity in a sustainable way.

What then is to be done? According to Karakatsianis, the first step is for a Company to be sustainable from an economic point of view, generating profits for the shareholders and the economy in general.

“Bankrupt Companies cannot be socially responsible,” he warns, stressing that no generation of value or wealth constitutes a major problem at a macroeconomic level.

“All Companies, big and small, should be profitable. If they are not, they will disappear,” he adds.

This financial soundness, in turn, will lead to the production of goods and services for the benefit of consumers, generating a more dignified work environment for all workers. This also leads to projects that reduce environmental impacts, proof thereof is the fundamental basis of Sustainability, which includes both social and environmental factors.

However, a favorable and supportive environment is required to achieve these goals, which should be provided by the State. For example, through a proper regulatory framework oriented towards the growth stimulation of a business and its economy.

And, finally, we must honor good business practices like the adoption of the good Governance Code and Corporate Governance, among other actions aimed at Environmentally Responsible groups, ranging from the government and suppliers to consumers and the community.

“These are very simple things,” he adds.

Donations are not enough

CSR is not just about making donations to the poorest sector of the population. It also cannot be confused with philanthropy however convenient it may seem.

No. According to Karakatsianis, CSR has a wider scope, where The Triple Bottom Line meets and defines Sustainability at an economic or financial, social, and environmental level. On the other hand, philanthropy is just a part of the process and not necessarily the most important part.

For example, a Company like Enron – he explains – could have made a number of donations with substantial social investment projects throughout the entire planet within the framework of strategic philanthropy, but this was not enough to become a responsible Company in society.

The Company altered its financial data as is commonly known, and it was not transparent or ethical with its stockholders and other Environmentally Responsible groups. These actions are opposite to the CSR standards and caused enormous damage to the Public-Sector Audit, stock markets, and to humanity thereby proving that their philanthropic actions were just a distracting sophism used to clean up their own image.

Thus, a Company can make donations with commendable philanthropic ideas without being socially responsible, and the reverse can also be true where the most authentic form of CSR is implemented but a Company chooses not to make donations or something to that effect.

“The key is to work on The Triple Bottom Line to achieve Sustainability,” he emphasizes.

Environmentally Responsible Groups

In the first place, and among the best business practices, we can find the Governance Code or Good Government, where a code based on transparency, as the name implies, is used in a healthy administration, the same guaranteed by the shareholders, investors, and the market in general.

According to Karakatsianis, it is a mistake to believe that such actions are unique to large Companies or financial entities, as they should be commonly found in each social organization. This includes the government, the State or public section, and the so-called Third Sector such as foundations. By the way, in Colombia, the securities market sets the standards in this regard, such as the protection of the minority shareholders rights.

The government is another Environmentally Responsible group, where CSR must also be applied. How? A great example is when taxes are paid or when the payment is not evaded as required by law. However, CSR goes far beyond compliance with the law, or in this case, the payment of taxes. Why can we say that? The most obvious answer is this: Complying with the law is an obligation, in other words, a binding factor. But CSR is voluntary, guided by an ethical mandate instead of a legal mandate. This is the result, for example, when citizens pay their taxes on a voluntary basis. Or if the association or Companies give their support to the state to help solve social issues (in education, health, housing, etc.).

And when can we be socially responsible with suppliers? In this regard, Karakatsianis highlights that the code of good practices, as with the other Environmental Groups, appear in the GRI (Global Report Initiative) report, whose methodology he does not hesitate to recommend. In this report, it particularly states that there should be fair and equal treatment with suppliers, which, in turn, is translated into concrete and specific actions. For example: pay them on time, avoid making them wait for long periods of time after your merchandise has been delivered, honor all commitments made with them, and respect their negotiating rights without being subject to discrimination.

Regarding clients and consumers, CRS is exercised in multiple ways. One of them is to provide accurate information about a product or service offered by the Company. In the tobacco industry, for example, it is necessary to alert the public about the harmful effects of cigarette smoke to their health. This is done by means of strict messages printed on the packs. In the same way, it goes beyond expanding the information related to said damages to disclose further alternative uses ensuring that certain members of the public, such as minors, do not have access to this product, and not even to brand advertisement. This is what is known as Product Responsibility, based on the GRI code.

Finally, there’s the Community, an Environmentally Responsible group par excellence. With it, a Company should be more responsible, even more so when it obtains a social operating license. In what way? The means to exercise CSR starts from simple employment generation until dignified and quality actions emerge; from the income generation that allows low income sectors to start their own business venture, sometimes becoming suppliers, improving life conditions, and even helping the State’s infrastructure development, like a school, or the construction of a sewer system along the sidewalk.

CSR is so big in the community –highlights Karakatsianis- that thought should be given on what to do when a Company disappears. The absence or transfer of this positive influence could cause the region to collapse, as has happened on many previous occasions.